Classmates.com 2007 Annual Report Download - page 125

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UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SUBSIDIARY INITIAL PUBLIC OFFERING OF CLASSMATES MEDIA CORPORATION
In May 2007, the Company announced its intention to explore the possibility of a subsidiary IPO. CMC was formed in August 2007 for the
purposes of consolidating our Classmates, The Names Database and MyPoints business units and initiating a public equity offering. The
businesses were contributed to CMC by the Company on August 9, 2007. In August 2007, CMC filed a Form S-1 registration statement with the
SEC for the IPO of its common stock.
In December 2007, the Company determined that proceeding with the IPO under then-current market conditions was not in the best
interests of its stockholders and the Company withdrew CMC's Form S-1 registration statement previously filed with the SEC. Approximately
$0.5 million of transaction costs were determined not to have continuing value after the withdrawal of the IPO and were expensed in the quarter
ended December 31, 2007. It remains the Company's strategy to complete an IPO of CMC. As such, certain additional IPO transaction-related
costs totaling $3.6 million associated with the IPO have been deferred and are included in other assets on the Company's consolidated balance
sheet at December 31, 2007. If the Company does not proceed with this strategy, these deferred costs will be expensed and included in the
Classmates Media segment operating results as well as in the Company's consolidated statements of operations in a future period.
13. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments at December 31, 2007 under noncancellable capital and operating leases, and related sublease income,
with initial lease terms in excess of one year, are as follows:
(1)
Year Ending December 31,
2008
2009
2010
2011
2012
Thereafter
Total
Capital leases(1)
$
14
$
—
$
—
$
—
$
—
$
—
$
14
Operating leases
12,087
11,365
7,194
4,942
4,486
7,758
47,832
Operating sublease income
(1,086
)
(1,113
)
(424
)
—
—
—
(
2,623
)
Total
$
11,015
$
10,252
$
6,770
$
4,942
$
4,486
$
7,758
$
45,223
Includes $1,000 of imputed interest.
Operating leases consist primarily of facility leases. The Company leases its facilities and certain operating equipment under operating
leases expiring at various periods through 2014. Certain of the Company's operating leases include rent holidays as well as escalation clauses
that periodically adjust rental expense to reflect changes in price. The Company records rent expense on a straight-line basis over the lease term.
Rental expense for operating leases for the years ended December 31, 2007, 2006 and 2005 was $7.4 million, $6.6 million and $6.5 million,
respectively.
Standby Letters of Credit
Standby letters of credit are maintained pursuant to certain of the Company's lease arrangements. The standby letters of credit remain in
effect at declining levels through the terms of the related leases. Certificates of deposit of $2.1 million and $1.7 million maintained by the
Company in connection with certain of these standby letters of credit are included in other current assets and other assets in the
F-43